Boy, do things move fast in the Web3 era. As you’ve doubtless heard by now, earlier this month, the major crypto exchange FTX — valued at $32 billion at its peak — collapsed in the span of a single week, setting off a cascade that has since taken out more than 100 affiliated companies. The scandal has also prompted a reckoning in the effective altruism (EA) community, of which FTX’s founder Sam Bankman-Fried was a major proponent.
Before all this, Bankman-Fried (affectionately known as SBF) held near-mythic status in the crypto world. The 30-year-old was beloved for his commitment to EA, his advocacy for regulation, and his down-to-earth broey-ness (he reportedly played League of Legends while taking business calls).
Sound familiar? SBF is just the latest in a parade of high-profile fraudsters (allegedly) that have transfixed our culture over the last few years. From Theranos’s Elizabeth Holmes, to WeWork’s Adam Neumann, to Inventing Anna namesake Anna Sorokin, it would seem that we just can’t resist a charismatic founder CEO with a bold vision — nor can some of the world’s richest investors.
Why do so many smart people keep falling for variations on the same con? And what can these capers teach us about decision-making? All this and more, in today’s newsletter.
Until next time,
Katie and the 100% trustworthy team @ TDL
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Today’s topics 👀
😈 How Con Artists Fool Us
👴 Keeping Older Adults Safe Online
🧠 How to Not Get Scammed
😈 How Con Artists Fool Us
They’re good storytellers. We humans are wired to think in terms of narratives. Con artists are really good at telling us what we desperately want to believe: stories that feed our desires for meaning, belonging, and to experience the extraordinary.
We don’t see ourselves as vulnerable. Thanks to optimism bias, we usually don’t expect the worst to happen to us. When we hear about scammers making off with people’s hard-earned money, most of us assume that we would never have fallen for their tricks. But in truth, nobody is immune to a skilled fraudster. That’s because…
They’re master manipulators. The "Dark Triad" is a set of three personality traits — psychopathy, Machiavellianism, and narcissism — thought to power the kind of “evil” behaviors that fraudsters engage in. Not everybody with one of these traits will become a con artist, but it’s likely that most con artists have at least one of them, letting them manipulate others without remorse.
FIELD NOTES: Keeping Older Adults Safe Online
In pandemic times, the Internet is more important than ever for keeping in touch with our loved ones. But for older adults, online life also comes with some big risks.
Older adults in the US alone lose an estimated $3 billion to financial scams every year — and things have gotten worse since COVID-19. According to the FBI, senior citizens lost 74% more money to scams in 2021 compared to the previous year, a staggering increase.
Although aging is inevitable, falling victim to financial fraud isn’t. TDL ran an original experiment to see whether a simple mindset shift could help protect older adults from online scams. We found that a quick nudge massively reduced older participants’ susceptibility to fraud. Read more about our findings here.
Reports of elder fraud have skyrocketed since the pandemic. For tech support scams in particular, where scammers impersonate tech companies and offer to fix non-existent tech issues, losses more than doubled between 2020 and 2021. Data from the FBI.
🧠 How to Not Get Scammed
What lessons can we take away from all of this? TL;DR: data is your friend. But let me rant a little bit before we get there.
In an op-ed for The Guardian, Arwa Mahdawi points out the undeniable stupidity of giving billions of dollars to a 30-year-old who publicly brags about gaming while taking important calls. Why would smart people ever do such a thing? Why would FTX’s top executives be okay with never seeing the company’s balance sheet?
Answer: too many business decisions are based on vibes, and vibes alone. We’ve normalized using intuition as the main input into investment and business decisions. That’s how you end up with your FTXes, your Theranoses, your Fyre Festivals.
This intuition-first approach also enables con artists’ self-mythologizing. We often put successful entrepreneurs on a pedestal: we talk about them in almost messianic tones, ascribe their accomplishments to preternatural talent, and rhapsodize about how they could save the world. So when the next hotshot founder CEO comes on the scene, we’re primed to swallow the lore they tell about themselves whole cloth, no questions asked.
At the end of the day, the best way to avert the next big con is to always demand quantitative evidence. Potential investors and partners should never make decisions without seeing cold, hard numbers. Do what Daniel Kahneman calls taking the outside view: look at similar projects or case studies to get a more accurate idea of how this venture is likely to perform. There’s no innovation so groundbreaking that you can’t find an analogous case somewhere, no matter what would-be scammers might tell you.
Craving more con-tent about the big scammers of our day? We're here with some recommended reading. If you want more of the behavioral science behind con artistry, pick up The Confidence Game by Maria Konnikova — but if you’re just here for the drama, Reeves Wiedeman’s Billion Dollar Loser is a very entertaining account of WeWork’s rise and fall.
The Barnum Effect
If you’ve seen The Greatest Showman, then you know the story of P.T. Barnum, a fraudster so prolific he has a cognitive bias named after him. Learn how the Barnum effect makes us susceptible to scams here.
Opportunities in Behavioral Science
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